1. Field of the Invention
The present invention relates to a process for effecting computer assisted securities transactions, and more particularly to a distributed processing system for computing the statistical probabilities of short term securities price trends and thereafter automatically settling securities trades.
2. Description of the Prior Art
The dynamics of motion of a stock or commodities market has been the subject of numerous books and articles. At the core is the fundamental departure of the market from the basics of a contract, i.e., the requirement of an offer and an acceptance. In place of these basic contract conditions the market seeks to match two remote parties making two offers, one to sell and the other to buy, and it is this matching process that has produced all the notions of a “broker”, “market maker” or “specialist.” Simply, this intermediary is currently needed in order to produce a contract at both the selling and buying ends.
The necessary presence of a market maker or specialist, however, has limited computer effected market transactions. As a result numerous solutions have been devised in the prior art which in one manner or another seek to replace the live market maker with an automatic process. Examples of such automated techniques can be found in U.S. Pat. No. 4,674,044 to Kalmus et al., U.S. Pat. No. 5,250,176 to Keiser et al., and others. While suitable for the purposes intended, each of the foregoing techniques relies on a set of basic operational parameters which, for example, report trading prices at some arbitrary time intervals, create a virtual market maker with arbitrary price limits on its trading authority, or impose other arbitrary constraints which are caused by artificial limitations in the method used and not by the market dynamics themselves.
These real or synthetic arbitragers, market makers and specialists are all deemed necessary because of a communication deficit that has heretofore existed. Simply, a contract mechanism assumes a direct, even face-to-face, transaction which in the earlier world of limited communications just simply could not be done at a distance. Intermediaries were therefore created. When their number accumulated all sorts of opportunities came into existence within the contract process itself and the influence of a “market makes” or “specialist” in the early stock market days has been legendary.
This ‘middle man’ influence persists even now, at the zenith of the ‘information revolution’. One need only inspect some of the recent rulemaking and rule change endeavors pursuant to Section 19(b) of the Securities Exchange Act of 1934, and particularly the NASD Order Handling Rules that were phased in after 1996, for an indication of the significance of the market maker on the market. Particularly lucid is the Limit Order Display Rule that compels the market maker to display basic information, i.e., more favorable limit orders than those offered by the brokerage. Simply, the force of regulation is applied to compel disclosure of what was there for the taking, i.e., revelation of the details of the order concealed by the broker.
Thus a physical limitation from the past has created its own, sometimes overwhelming, impact on the marketplace dynamics that persists even after the limitation is gone. Similar past limitations in the settlement process and the subsequent banking transaction have further distorted the market mechanism, and the convenience of credit facility has increased the influence of market makers, arbitragers and brokers even more. Significantly, information relating to the clients' needs for lateral offsets that became available within the brokerage or market making enterprise allowed for yet further market influence.
Each of the foregoing is not necessarily associated with some notions of malevolence. Simply, the brokering enterprise is exposed to a much larger flow of information which will inherently affect those decisions that are purely arbitrary and while the current statutory and regulatory architecture may focus on market manipulation and the like there is no possible regulation of conduct that in all essentials appears intuitive.
Recent advances in technology have effectively removed the need for these intermediaries by increasing both the range of the participants' virtual sensorium and also by increasing participants' information processing facility. Thus the individual investor can now be virtually present right in the “trading room,” viewing the stream of offers made and, if desired, accepting one or more of them. As result the intermediary can be wholly omitted in today's level of technology. What is then left is the phase lag that is inherent in all dynamic systems, a buy and sell order mismatch that can be reduced by including in the order a set of price brackets that are based on the current statistical pattern of the market.
Unconstrained by the influences of a brokerage or arbitrage mechanism, the dynamics of a marketplace are similar to the dynamics of many other natural systems. In their simplest form natural oscillatory systems are statistically expressed by their spectral energy distribution, or their power spectral density, and their relationships (equations) of motion, elegantly stated by cross and autocorrelation functions. The computations of various predicted measures using these mechanisms are well known in physical science. For example the prediction of mean time between exceedance in wind shear is regularly done on the bases of the power spectrum and autocorrelation of atmospheric turbulence, as are computations of exceedances in background radio noise and even ocean wave predictions.
More importantly, these natural processes have been earlier accommodated in the evolved logic of the process participants. In a market process each buy-sell exchange is based on the participants' own perceptions, processed by evolved analogical (or even intuitive) rationales, where each participant makes his or her own observations and based on these makes the buy-sell decision and enters into the contract. This process was evolved as part of all communication facility and is therefore an integral part of all evolved logical organization.
Until recently the foregoing interchanges were all at arms length. Remote transactions are a new phenomenon and therefore have had little evolved accommodation. More importantly, remote transactions are always associated with a lack of observable information which in itself evokes fear and reticence in any exchange. Thus what is invisible to the individual decision maker, like the various motivations of the intermediary, also creates distortions. This overlay creates its own effects which often mask the natural dynamics of the marketplace. (One may want to note that the intermediaries' overlay is not necessarily malevolent. Often it is just simply there and by its presence creates apprehensions and even blinds the senses of the individual market participant.)
For all these reasons a technique that both omits the intermediary in stock market transactions while also selecting the most informative samplings is therefore desired and it is one such technique that is disclosed herein.